Introduction
As per the given case, Bicycles are to be manufactured in US ans to be sold at rates of $100 per bicycle. There is an option to outsource the material from other countries as well as assembling the machines on other countries. This paper provides an analysis of the legal and tariff issues involved. The paper does not attempt to undertake actual detailed costing, process and quality requirements analysis.
US Trade and Tariff Laws Implications on importing raw materials
USITC. (July 2006) has placed strict restriction with regards to import of circular metal and carbon tubes with less than 4 millimetre wall thickness. The US has a strong policy for anti dumping with reference to countries such as India, China, Korea, Mexico, Taiwan and other countries. Dumping is the defined as the process of importing goods without showing the means for use in manufacturing. The US government though it has conferred the Most Favoured Nation to all countries except Cuba, it has taken a unilateral decision on the import of metal tubes of types such as welded, Spun and extruded. Organizations need to show documents such as bill of lading and show proof that the items would be manufactured and sold. If this is not observed, a tariff of 25 % would be levied on the FOB value of the consignment. In addition, any business that undertakes such import activities would be liable for a tax of 35 percent. Concessions may be shown for minority, Veteran owned businesses.This observation makes importing of tubes not feasible in US to achieve a bicycle of less than $100.
Factors for Assembling of the Bicycle
Berry (1999) has examined the main incentives that should be considered for assembly operations in other countries. According to the author, the following points should be noted.
- Subsidies – These are rebates and cuts provided by foreign governments to safeguard their existing businesses from risk such as competition, labour costs, materials, etc.
- Protective Tariffs – These are imposed to raise the price of a foreign competitor’s goods. Factors such as restrictive quotas, anti-dumping measures and these are on par or higher than domestic prices.
- Quotas – These are enforced by the government to stop dumping of cheaper foreign goods made at cheaper prices and which would overpower the local market.
- Tax cuts – Rebates in taxation that government may provide to alleviate the burdens of social and business costs.
- Intervention – Some countries intervene and artificially either depress the price or increase it to protect local interests.
- Trade restriction – These are restrictions on the number of units that can be manufactured or sold by a foreign manufacturer.
- Exchange Rate: The exchange rate is a strong factor in determining the location for the manufacturer. A strong local currency means less earnings in dollars while a weak currency means a greater earning for the dollar.
- Labour Laws – Determine how easy it is to fire a worker or hire them on contract basis.
US foreign trade zone
FTZ (2007) are designated areas near ports where goods can be imported, stocked, assembled and manufactured without having to bear additional taxes. While in the zone, merchandise is not subject to U.S. duty or excise tax. Goods may be exported from the zone free of duty and excise tax. Merchandise imported under bond may be admitted to a FTZ for the purpose of satisfying a legal requirement of exporting the merchandise. The disadvantages are that the labour would still be from US segments and the labour charges are high. If the goods are to be sold in the local markets, then all the tariffs, taxes and others would be imposed on the product and the tax advantage would be lost.
Applicability of U.S making and labelling requirements
The product is deemed as an engineering product and hence there are no mandatory regulations of US Drugs and Federal Organizations requirements on labelling to be met However under Section 21 CFR 820.80(b), equipment labels, control labels, package labels, directions for use, maintenance manuals, etc. need to be provided along with country of origin (Labelling. 2002).
References
- Berry, S., Levinsohn. J. and Pakes, A. 1999. Voluntary Export Restraints on Automobiles: Evaluating a Trade Policy. American Economic Review 89(3): 400-30. In: Benjamin, D.K. (1999) Voluntary Export Restriction on Automobiles. Bozeman, Montana: PERC – Property and Environment Research Center
- FTZ. 2007. About Foreign-Trade Zones.
- Labeling. 2002. Labeling Requirements – Quality System Regulation.
- USITC. July 2006. Investigation Nos. 01-TA-253.